Tar Heel Tattler - June 2005

When more than you need is not enough

By Arthur O. Murray

To shed 450 of its 15,700 jobs, Raleigh-based Progress Energy offered early retirement to 3,500 people — everybody on its payroll who had turned 50 and spent at least five years with the company. The plan worked only too well.

Nearly 1,450 jumped at the offer, which means Progress must hire 1,000 people to get back to full strength. Worse yet, those who took early retirement didn’t include everybody whose job management wants to cut, meaning it still might have to lay them off. “But there’s a lot fewer of them than it would have been otherwise,” spokesman Keith Poston says.

In fact, the company could wind up saving even more money. Eliminating the 450 jobs would have cut costs by $75 million a year — nearly 10% of last year’s revenue. The urge to purge came from two projections that alarmed executives: Revenue from the company’s regulated utilities was increasing only 2.5% a year, while costs were rising 4% to 5%. Progress blames employee benefits, especially health insurance.

Shedding 450 positions will result in a $130 million charge this year, the company estimates. All those new hires could push that figure higher, Poston says. “But those are one-time costs, and they are far less than the savings that we are achieving. Layoffs are much more disruptive and expensive.”

The reason, he says, is that severance packages are an operating expense. Retirement benefits come from the pension plan, which he says is overfunded. And hiring 1,000 people isn’t as daunting as it sounds. “Any given year, we have to hire about 600 employees.” It’s also no secret new hires probably will be paid less than the experienced people they’ll replace.

But that’s not all. “By offering early retirement, they’re getting rid of some of the biggest users in the health-care network,” says Laura Hanf, a principal in the Charlotte office of Findley Davies Inc. human-resources consultants.

Did Progress know it would work out so well? Poston answers that this way: “We’re pleased with the success of the program. You design a program that you hope employees will find attractive. You don’t want to design a program that no one takes.”